Download The Great Depression - What Crashed and Why?

Name
margin. They were gambling that prices would rise. The stocks could
then be sold, the loan paid off, and a profit made.
The Great Depression - What Crashed and
Why?
Rich people had seen their wealth increase by leaps and bounds
during the "Roaring '20s." They poured money into the stock market.
More people than ever before bought into the booming market, hoping
they could reap big profits. This speculation was the basis for much of
the boom.
By Toni Lee Robinson
The Great Depression was a very bad time for most Americans.
Imagine putting your paycheck in the bank, only to have the bank go
out of business the next day! Your paycheck and savings are gone.
Then, imagine going to work the next week to find the door locked.
Your workplace is out of business! You have no money. You have no
job, no way of earning money. How would you pay rent or buy food?
This question faced many Americans during the Depression. The
period from 1929-1941 was known as the Great Depression, the worst
economic disaster in American history. Millions of people were out of
work. Homes and farms were lost to foreclosure. People scrounged
for any sort of work to feed their families.
How could this happen? The causes of the Depression developed
over a period of many years, beginning as early as World War I. From
1914-1918, industry had picked up speed to meet the war demand.
After the war, the boom had expanded. Factories found cheaper ways
of manufacturing their wares. Working people were making higher
wages.
Farming seemed to be the only sector that didn't share in the good
times. During World War I, European farms had become battlefields.
To supply food for the rest of the world, American farmers had been
pushed to produce more and more. At war's end, European farmers
returned to the land and the market was soon flooded with farm
products. American farmers were left with piles of surplus crops and
no market.
The world market left its mark on the American economy in other
ways. Congress had set tariffs, or taxes on imported products. The
tariffs made it very hard for other countries to sell their goods in the
U.S. With the loss of American sales, European nations struggled to
pay their war debt. They struck back by setting their own tariffs.
In the U.S., factories churned out goods at a frantic rate. Speculation
kept driving up prices. The rich got richer by sixty-five percent, but
working class income went up only eight percent. Wealth became
more lopsided. Wages weren't keeping up with inflation, and families
now spent most of their money repaying debts. New products sat on
the shelves.
The 1920s were one long surge of prosperity. The war was over. Life
was good. Streams of goods poured out of the factories. Stores and
showrooms were bursting with shiny luxuries. A new marketing tool,
advertising, made products seem very attractive. People wanted to buy
things.
The economy was propped up, like a clown on stilts, by credit and
speculation. At the end of the '20s, the boom began to falter. First,
investors worried, and then they began to sell. Prices plunged as
traders dumped millions of shares. On October 29, 1929, more than
sixteen million shares were sold. The stock market crashed. The day
came to be known as Black Tuesday.
It was a time tailor-made for consumer credit. Until now, families
had waited and saved for big-ticket items like appliances and cars. But
with the installment plan, a person had only to sign papers and make
monthly payments. Almost anyone could drive a new car or bring
home a gleaming new washing machine.
The stock market crash set the United States on a downward slide.
Soon the entire system had collapsed. Businesses couldn't sell their
goods and closed by the thousands. Banks lost money when
businesses couldn't repay loans.
Working class families went into debt. In fact, a cycle of debt
engulfed the economy. Working people saw the stock market as a sure
route to wealth. Many bought their stocks and bonds on credit, or on
Panicked crowds rushed to draw their money from banks, but there
was no money. Millions of people, their savings lost, were also
unemployed. The outlook was grim. Many wondered how the U.S.
would ever recover.
Name
The Great Depression - What Crashed and Why?
Questions
5. What did it mean to buy stocks "on margin"?
A. The stocks were bought at marginal prices and sold for
big profits.
B. Stocks were bought on credit and the loan paid off when
the stock was sold.
C. Buy and sell orders to traders were written in the margins
of documents.
D. The stocks were bought at high prices and sold for very
little.
1. Why do you think the time from 1929-1941 is called the Great
Depression?
6. Why were farmers having a hard time while everyone else was
prospering?
2. The economy was propped up, like a clown on stilts, by credit
and speculation. This sentence is an example of:
A. hyperbole
B. foreshadowing
C. a simile
D. a synonym
7. What is a tariff?
A. a production quota
B. a tax on foreign goods
C. a production subsidy
D. a stiff fine for violating trade laws
3. How did people feel about consumer items in the '20s?
A. They didn't want to get caught up in material possessions.
B. They felt they should wait until they had saved enough to
buy the items.
C. They thought factory products were junk.
D. They wanted to buy things.
8. Describe the effects of Black Tuesday on America.
4. Explain the installment plan.
Name
Explain the idea of credit. Is it a good or a bad thing?
You have worked hard for three years, saving to buy a car. Finally,
you have enough money. When you go to withdraw your money, a
sign on the door of your bank says "Out of business." What would
you do?